DARPA, the famed Pentagon boffinry bureau occasionally beset by marble-localisation issues, has struck again. This time, the agency seems to be seeking new mathematical tools which could - among other things - prevent any future collapses of global capitalism.
The new project comes to us under the name "Survivability of …

COMMENTS

WTF?

It doesn't need software to prevent another credit crunch!

All it needs is a law against lending borrowed money to a third party without the explicit consent of the person who lent it to you -- and not in advance before you borrowed it and buried in small print, either, but at the actual time you lend it on.

Well, and for that to be rigidly enforced, with heavy penalties for offenders, obviously.

Isn't that how we got into the current mess?

No. No. No. NO!

Do they never learn?! Unquestioning reliance on overcomplicated mathematical risk-modelling techniques is a large part of what got us into this mess in the first place. It may be portrayed as a way of accurately assesing the stability of financial structures, but in reality, the main motive for the precise quantification of risk is to enable you to cut safety margins to the bone in the search for greater profit - and that is what this will end up getting used for.

Dr Singpurwalla sounds like a "quant " trying to rehabillitate his profession. Pride goeth before a fall, and the fantastically deluded belief that we can quantify and plan for everything goeth before all too many disasters.

I am reminded of an old Asimov story about a young man who builds a fantastically powerful computer in an attempt to create a perfect model of finance and economics, which would enable him to become obscenely rich, based on his belief that all things happen in predictable cycles. It suceeds, initially, but he becomes megalomaniacally overconfident, and attempts to create a perfect model of all human behaviour, with a view to essentially becoming God. Unfortunately, despite it's staggering complexity, his computer simply isn't up to the task of accounting for the unprecedented impact of its own existence, and catastrophically crashes, wiping him out.

And the flaw is....

... that you have to know how these interdependent entities interact with each other.

Which was one of the reasons why western capitalism as we know it collapsed. None of the masters of the universe seemed to understand that their highly-sophisticated mega-deals were dependent on sub-prime borrowers keeping up the payments on unaffordable mortgages which had virtually been pushed down their throats. Or, if any of them did know that, they certainly kept it quiet - a bit too embarrassing to admit, wasn't it? The whole system was too complex to understand.

And besides, isn't this just a variation on the sort of risk assessment that is done in safety and reliability work?

No need to start from scratch.

Surely, the financial sector has tools that carry out this kind of work already? They obviously fucked up badly or were just ignored but I'd be surprised if the banking world didn't already have some seriously powerful market prediction tools to hand.

Maybe DARPA could improve on that instead of starting at the 'How many peas have I got?' level?

Far easier...

Take the command levers out of Greenspan et al's hand (also, sew their mouth shut so that retarded statements about "rational exhuberance" and "no bubble in the housing market" etc. are no longer on the airwaves), scrap the paper money printing presses and demand that banks no longer be able to leverage their deposits like there's no tomorrow and voilà -- about 98% of the problem of financial instability should be solved.

Internet Upgrade

You see risk analysis software that can prevent the collapse of capitalism. I see risk analysis software that will upgrade their first and possibly only major success - the internet.

The next version of the internet will have the software required to accurately assess the risk of downloading porn from various sites and enable us to make wise decisions with regards to our porn collections.

Welcome to the REAL Web 2.0, where porn is no longer saddled with the risk of viruses and spyware.

@Lionel Baden

I was just thinking "Psycho-history"...

We have just started the interegnum before the new (British?) Empire is established, but do we have a Foundation to shorten those dark ages or are we one of the falling civilisations waiting to be stitched up by some one else's Foundation?

Unfortunately bollocks

> developing stochastic processes with novel properties and a stochastic calculus for the processes that will enable new capabilities for system risk assessment

The mathematics was done in the USSR around 50 years ago, in furtherance of the idea of glorious communist revolution in all countries. It had been noted that developed economies had cyclical behaviour, that the opportunities for revolution improved during slumps, but that the periods of boom and slump were different for different countries. The upshot was a theorem that demonstrated that such a stochastic system developed arbitrary cycles in its parts, and that these cycles tended to converge in periodicity over time.